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This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include downgrades for defense contractors AeroVironment, Inc. (NASDAQ:AVAV) and Harris Corporation (NYSE:HRS). Meanwhile, though…

LCD specialist Cree lights up the scoreboardsGreat news for Cree, Inc. (NASDAQ:CREE) shareholders this morning: Wall Street likes your stock again. In twin announcements Tuesday, Cree confirmed that it’s going to begin selling a new LED lightbulb, exclusively through The Home Depot, Inc. (NYSE:HD), and for the low, low price of less than $10. Even better, Cree’s so convinced this product will be a success that it’s upped its revenue guidance for the fiscal third quarter (that’s the one we’re in now) to a new range of from $335 million to $350 million — and on stable gross margins of perhaps 39.5%.

Wall Street loves the news, with Credit Agricole upping its rating from underperform to outperform in a Paris minute yesterday, and Goldman Sachs Group, Inc. (NYSE:GS) praising the company’s new “price points as very competitive” and hiking its own price target for Cree stock to $48. This morning, a third analyst joined the Cree fan club, as UBS went a step further and projected Cree, Inc. (NASDAQ:CREE) shares will hit $51 before a year is out.

Are they right? Well, let’s see here. According to StreetInsider.com, Cree thinks it can earn between $0.16 and $0.21 per share this quarter ($0.31 to $0.36 pro forma). If it’s right, that would work out to at least a double in GAAP profit over last year’s Q3 levels, and perhaps an increase of 162%. Even pro forma, the growth rate would exceed 50%. Either way, that’s a whole heck of a lot faster than the 37% earnings growth Wall Street has Cree pegged for this year, and suggests there’s reason for the analysts’ optimism.

Granted, at 108 times earnings, Cree shares don’t look like much of a bargain on the surface. But if you value the company on its remarkably strong (four times GAAP earnings) free cash flow, and credit it for its strong cash reserves ($886 million, with no debt in evidence), the stock actually looks pretty fairly priced at 20% projected growth, and an enterprise value-to-free-cash-flow ratio of just 19.4. In short, I wouldn’t short Cree, Inc. (NASDAQ:CREE) on this rally. This stock’s not nearly as expensive as it looks.

AeroVironment crashes and burnsIf only I could say the same for small unmanned aerial vehicle specialist AeroVironment, Inc. (NASDAQ:AVAV), which yesterday missed earnings badly, then compounded the fumble with a prediction hat fiscal 2013 earnings will come in at just $0.42 a share — down from earlier projections of $1.43. The news prompted an immediate cut in price target by FBR Capital, which slashed expectations by nearly half, and said AV investors will be lucky if their shares are worth even $19 a year from now. BB&T Capital seconded the emotion, pulling its buy rating and downgrading AV to “hold.”

But is the news really as bad as all that? Well… no, actually. It’s not — but it’s certainly bad enough.